Abstract

This project analyses the determination of profitability in the United Kingdom brewing industry during the period 1972-1982. It is based on a. sample of fifteen brewing companies including the major national and regional companies.

The study examines previous literature on the determination of profitability in industry in general, and the brewing industry in particular. (PIMS: Schoeffler 1977, Price Commission, 1977) It examines in some depth the debate as to whether higher market-share leads to greater profitability, and analyses the belief that an industry study should look at groups of firms within industries rather than aggregated data across industries. (Hatten and Schendel 1977. Porter 1980 and Woo 198*1)

The study looks at the effect on profitability of nine independent variables paying special attention to the effects of market-share. The analysis categorises firms into strategic groups using a combination of qualitative and quantitative data. It also compares and contrasts the results with the experiences of the Dutch and United States brewing industries.

The results suggest that the size (in terms of turnover) of the brewery company determines the strategies they pursue and how these strategies affect profitability. A U-shaped curve relationship between market-share and profitability is identified and strategic groups are determined on the basis of how similar the brewers adopted strategies were during the study period. The results show the problems of transferring a methodology from one industry to another.

In comparison to the Dutch and United States experiences, the United Kingdom brewers have been subject to a more volatile industry environment due mainly to changing consumer tastes. The expensive manufacturing and marketing strategies adopted by the national brewers in an attempt to capitalize on these changes led to their generally lower profitability when compared to the regional and small brewers during the study period.